With the New Year finally, here, financial advisors are going over all the investment instruments to analyze and forecast which options offer the best advantages. As per advisors, if tax planning is on your mind this 2016, then Mutual Funds (MFs) tax saver plans are the best option for you this year, while traditional insurance policies remain on the other end of the pool.
Tax Planning for 2016 ,Mutual Fund (MFs) investment are the best available Option to us.
This analysis of the best and worst investment instrument has been done by taking 7 key parameters into account. They are –
ELSS is a tax saver MFs
On the list of instruments easy on taxes but good on returns, ELSS (Equity Linked Savings Schemes) acquired the top bill. Although being high on the risk factor, they are also high on the returns factor. With the shortest lock-in period of three years, ELSS also comes with high transparency and is incorporated under Section 80C. They are also the shortest insurance options among other Section 80C tax-saving investment options.
Traditional insurance policies, on the other hand, provide maximum safety. But the siblings of traditional insurance as per the market, which is Ulips acquire the second position in our ranking as they offer great flexibility to switch, but the only downside with them is that they are a long-term commitment.
However, contrary to the ELSS options, Ulips’ corpus can be switched from debt funds to equity and vice versa. They can do it after 3 years. This is not an option for ELSS funds where you cannot touch the money for 3 years. The biggest advantage of Ulips is that there are no tax liabilities from such switching. Moreover, all other insurance instruments Ulips also enjoy tax exemption under Section 10 (10D).
To occupy the third rank in our list is National Pension Scheme (NPS) only because of the recent changes mandate by the financial authorities in the tax laws and investment mandate. While investors cannot invest more than 50 percent in equities; but NPS fund managers need not follow such a passive investment plan for the better.
National Pension Scheme
Fund managers in NPS can now invest in a whole new universe of stocks and also in the proportion they find suitable. The CEO of Mutual Fund tracker Value Research, Dhirendra Kumar said that these new laws would help increase the return rates of equity funds of NPS in the upcoming few months.
Moreover, what is greater with NPS is that the previous year’s budget allowed an additional tax deduction of INR 50,000 for those with investments in NPS. This is as per Income Tax Act Section 80CCD (1b).
As for the old-timey popular investment PPF (Public Provident Fund), it occupies the 4th position in the rankings as it is a good option for conservative investors who do not have a problem with earning less, as long as returns are assured. But most investors suggest a better option with Sukanya Samriddhi Scheme for those with daughters less than 10 years of age. If you are one such parent you could invest in Sukanya Samriddhi Scheme instead of PPF as it will reap better results of 9.2 percent interest rate and that too with tax-exemption, in comparison to PPF’s 8.7 percent.
Other pension schemes of insurance providers are not that advantageous in comparison to NPS. That is why they have low rank and are not very advisable as per tax planners. RGESS (Rajiv Gandhi Equity Savings Scheme) although only advantageous for first-time investors with low deduction offerings. But they still rank better than insurance schemes.